Sanitation framework, nascent LatAm lithium industry keeping Brazil’s chloralkali afloat – Abiclor

SAO PAULO (ICIS)–Brazil’s chlorine and caustic soda sectors have kept afloat in better health than the wider chemicals industry as sanitation plans and new lithium exploitations across Latin America keep demand high, according to the director general at the country’s trade group Abiclor.

Abiclor’s Milton Rego added, however, that the competitive challenges the chemicals industry faces in Brazil are common to both the parent industry and its chlorine subsector: high input costs, which make the whole industry suffer, infrastructure challenges and in the past two decades, fierce competition from China, not only in chemicals but for nearly all manufactured goods.

However, given chlorine’s specific characteristics and its highly dangerous nature, shipments are more difficult, isolating the sector from the abundant, cheap imports other chemical products have had to face up to.

This is well reflected in the operating rates in 2023: caustic soda and chlorine sectors averaged 70%, which is a low rate but higher than the overall chemicals industry’s at around 65%, according to figures from the Brazilian chemicals trade group Abiquim.

WATER (FROM THE FAUCET) FOR THE PEOPLE
Brazil will need a lot of chlorine in coming years. Despite all its natural wealth and the abundance of fresh water, around 33 million people in the 220-million strong country still do not have access to sanitized water yet.

To tackle this, the previous Administration passed in 2020 the Reformulation of the Sanitation Legal Framework – or Novo Marco Legal do Saneamiento in Portuguese.

Mostly through public-private partnerships, the plan envisages that by 2033 all Brazilians will be able to open the tap without fear of bacteria – and that means chlorine.

Large Brazilian chemicals companies such as Unipar are tapping into the Marco Legal to expand their operations, in this case with a new chlorine plant in the northern state of Bahia.

The largely de-industrialized and poorer Brazilian north is where still many cannot open the tap without fear of being infected.

“The Marco de Saneamiento has some very clever points. On the one hand, it set the targets while improved the states’ ability to implement public-private projects, improving how they achieve the targets,” said Rego.

“On the other, if the states do not achieve the targets, they could be penalized by not receiving the funds set up in the Marco for its development.”

While the Marco de Saneamiento is set to place Brazil at the forefront in Latin America when it comes to sanitized water in people’s houses, some of the country’s perennial problems are still casting a shadow, said Rego.

Namely, leaks in the water infrastructure as well as theft are still a cause for concern. Those two factors are also the ones that, despite all the sanitation work behind, make sanitized water still not suitable for drinking when it gets to Brazilian households.

Even in the well-developed Sao Paulo and Rio de Janeiro, for instance, those who drink water from the faucet do so after filtering it. A far cry from the European systems, where water is safe to drink straight.

“There have not been enough investments in keeping the water infrastructure systems up to date. The Marco de Saneamiento touches on the states’ responsibility in keeping the network functioning properly,” said Rego.

“But no matter all the good intentions and plans to do so, when you get all those external factors [theft and leaks in the old networks, mostly] denting the quality of the water infrastructure network, it makes achieving the final goal harder.”

CAUSTIC SODA: 3 MILLION DEMAND, 1.5 MILLION OUTPUT
Considering how chemicals producer have been besieged for much of the past two years by cheap imports coming into Brazil, the caustic soda situation may look enviable.

Operating rates of 70% are not the panacea, Rego concurred, given the enormous spare capacity, but when compared to the wider industry, it is a healthier figure.

In fact, Rego said the sector is already at pre-pandemic levels in terms of rates; a far cry from the wider industry, where operating rates continue to fall as global oversupplies for most chemicals keep denting domestic producers’ output.

Brazil’s caustic soda output stands at around 1.5 million tonnes/year, but the country’s demand is at around 3 million tonnes/year.

However, geography and industrial strengths play a part here. On one hand, most of the caustic soda imported into Brazil comes from the US via the Gulf Coast, and it is shipped to the northern states where aluminum production is strong.

On the other hand, most of the 1.5 million tonnes produced domestically are produced in the south and serve the industrious southern states such as Sao Paulo or Rio de Janeiro.

“Our caustic soda deficit is mostly covered by the US: from the Gulf Coast to the northern Brazilian ports the freight costs are not too high, and it is perfectly placed to serve the high demand from the aluminum sector,” said Rego.

“We have become too accustomed in Brazil to talk about our industrial decadence and how that could be reversed, but the aluminum sector, for instance, remains strong and not only cater for Brazilian demand: it is also a sector managing to export to overseas markets.”

Rego said the Brazilian chloralkali sector can also look with optimism and the booming lithium sector in Latin America.

As of now, Brazilian producers are exporting to Argentina and Bolivia caustic soda and derivative hydrochloric acid (HCl) for the extraction of lithium, a key component for electric batteries as the world seeks to electrify transport.

“We are confident those exports are set to expand to other Latin American markets,” said Rego.

THE COUNTRY OF THE FUTURE, STUCK IN THE PRESENT
Rego’s fascination for how Brazil went from industrial superpower in the 1960s and 1970s to the current nearly-permanent industrial crisis – with agriculture and services coping much of the growth in the past few years – captivates the imagination of the listener.

One should not forget the mantra which became a joke: in the 1950s and 1960s Brazil was ‘the country of the future’ and it did show in things like building a new capital from scratch in just 10 years or the fast-paced urbanization in places like Sao Paulo or Rio de Janeiro states, which had a great damaging effect on the environment.

As an example: in a tropical paradise like Brazil, water is everywhere. Sao Paulo’s two rivers – Pinheiros and Tiete – are just a fraction of the several waterways that ran through the city before urbanization: they were all channeled and tunneled to make way for roads above them.

Back to industry. The Brazil of the future stayed in the past. The 1980s economic crisis put the country on its knees, and China’s renaissance from the 1990s made the rest, according to Rego.

“China increases sharply the competitiveness of most of its industrial products. But, as it has been said several times before, the logic in China’s economic system is not a capitalistic logic, and that has reverberations globally,” said Rego.

“Globally, and locally in Brazil: China’s ascend meant Brazil’s descent, as much higher production costs here made our industrial goods less competitive. Funnily enough, this is also affecting Europe, especially in the past two years after war in Ukraine broke out and energy prices became very high.”

Therefore, the US with its own shale gas revolution, the Middle East, and Asia are now the most competitive industrial regions, said Rego.

Brazil’s prowess in agriculture, he added, cannot make the country forget that a healthy economy requires a strong industry, able to cater for domestic demand and also able to export.

That is where Brazil’s interesting history stands at the moment.

A new industrial plan recently presented by the government could help tackle some issues, said Rego, but there have been many industrial plans before and they failed to lift up industry’s prospects.

Regarding chemicals, Abiquim used throughout 2023 an apocalyptic language to describe the state of the industry, warning the survival of several chemicals chains in Brazil was at risk.

Rego preferred to describe Abiquim’s “necessary” lobbying as “eloquent” – but at the end of the day, the story is the same: with current high input costs, chemicals in Brazil are set to have a harder time than peers in other major economies.

Front page picture: Promotional image of the Marco Legal do Saneamiento
Source: Brazilian government

Interview article by Jonathan Lopez